Exhibit 6-2
You purchased a bond last year that pays an 8% annual coupon with a face value of $1,000. At the time of purchase, the bond had a yield to maturity of 10% and had 10 years until maturity. Today, the bond trades at a yield to maturity of 9%.
-Refer to Exhibit 6-2.What was the percentage return of this investment over the last year?

Question

Quizplus · Accepted Answer

Bond price last year:
N = 10,I = 10%,PV = ?,PMT = $80,FV = $1,000
PV = $877.11
Bond price today:
N = 9,I=9%,PV=?,PMT=$80,FV=$1,000
PV = $940.05
Percentage return = ($80 + $940.05 - $877.11)/$877.11 = 0.1630

Exhibit 6-2 You Purchased a Bond Last Year That Pays an 8